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President Donald Trump's tariffs to slow growth and boost prices, but the scale of the impact, of course, depends on just how the tariffs are implemented. This week, the OECD slashed its outlook for the second time this year, suggesting the world is heading for its weakest growth since a global pandemic. And while Trump has called for rate cuts, FED officials have signaled they'll hold them setty until they have a better understanding of how tariff's, immigration, and taxes
will all affect the US economy. So there's a lot to discuss with Philip Hildebrand, the vice chair at Blackrock. Philip, as always, thanks you so much for joining us. I think last time we got up was right before the inauguration. It was actually in Davos, and there we were trying to figure out what kind of presidency or what kind of impact it will have on globalization. We're now at the start of juwe and what have you learned over lost six to seven weeks.
It's good to be here, Francine, it's been a while. Look, guys, I think generally speaking, it's pretty clear that we're moving from a in a sense of longstanding policy equilibrium to a new one, and we're I would say, in between.
And what is not.
Clear is where this new equilibrium will ultimately settle. And so until that becomes clearer, and the budget that you mentioned at the outset is another indication, until it becomes clear where ultimately the new world will land, as it were, we are in this transition period and that is a period of volatility of very rapid news cycles. You know, you wake up every morning and you have more news and want to digest it to watch you and come here.
So I think we need to sort of step back a bit and think about where does the world kind of go to in this in this clearly new regime that has that has begun, where do you.
Say going to?
But also is there a danger that you know, we're going from A to B or A to say it if it's radically different, that a lot of things break in this journey.
I think that is the risk is always when you're in these transition phases that you know, uncertainty is heightened. Heightened uncertainty tends the way on demand. And then on top of it, I think as an overarching theme, you have high debt vulnerability in most countries, all countries virtually have come out of the Great Financial Crisis, and then COVID industrial policy.
These three big.
Forces have led most countries to accumulate huge debt loads, frankly, and that kind of weighs over the entire system. And you can see that in the sense that rates tend to be edging up. There's a term premium that's beginning to clearly emerge in US bond So you know, all these things are indicators that we are in this volatile and uncertain transition and we just have to kind of stay fixated on the longer term and see where it all lands.
And so I want to come back to actually the debt in a second. But as a central banker, why have we not seen so we have very concerning surveys about people being worried not spending, but it hasn't quite materialized yet. So does that come all at once? Is it a laggered or could we get away with actually the economy being okay?
Well, it's complicated because number one, if you look at trade policy, we don't know where things will settle, and you can see markets react as soon as there's some pullback of the most extreme scenarios. So that's part of it. The other part is it just takes time. It takes time for these things to settle through. Investment plans don't change overnight. Spending patterns don't change overnight. The US consumer
has always been resilient historically. There's also a lot of cash on the sidelines, so if you look at it from an investor's perspective, a lot of incentives to sort of stand ready with the cash and invest when the opportunity comes. So all these forces kind of lead to this slightly uncomfortable interim period in a sense, between a new equilibrium and the old equilibrium. And it takes time for these things to manifest themselves in the real economy.
So the markets also behave differently because of all of the money in private markets.
So I think that's part of it. You know, there are some great opportunities out there in the marketplace. Let's just look at a statistic the other day. I'm heading to Germany tomorrow. There are apparently four thousand bridges in Germany that are in urgent need of repair. This is a very kind of basic infrastructure story. Then you think about artificial intelligence, you think about the data centers, the energy supply that that will require, the new data centers
that will be built. So there is so much there's so many opportunities, and a lot of them do occur or will occur in private markets, which is one of the reasons we have invested heavily in our private markets capabilities.
Going forward, the US.
And China ratching up tensions. I guess, you know, the concern is about debt. So Elon Musk has ways of doing it which are a little bit unorthodox, going after the president with you know, port field words. But the bottom line is that he's worried about a debt and that he's cut so much in dolge and that doesn't go anywhere. How should we view treasuries? Should we start thinking about, you know, is it as safe as it used to be? Does this also change everything?
Yeah?
I think this is in a way the critical question when we talked about the new equilibrium.
And again, debt is not an issue just in the US. It's an issue in most countries. It's a result of the last twenty years.
In a sense, I would say, you know, there are only a handful of countries that have never put in question the sanctity of their sovereign signature that have never outright had a sort of outright default. It is extremely important that the US remains firmly in that camp of those handful of countries. The US dollar remains the world's reserve currency, It remains the anchor of the cysts them. The US mod market is the anchor of the financial system.
So it is extremely important that Congress, you know, which is deliberating the new budget now, keeps in mind this this critical issue of protecting the sanctity of the sovereign signature in the United States as the anchor of the system, notwithstanding whatever changes they want to make to the overall economic order, to the trade order. In particular, this question of you know, being able to rely on the sanctity of the sovereign signature in the United States is very very important.
I know.
Larry Fink also pends a really interesting opinion piece, and this is a quote that we picked out which is basically the thesis of what he wrote, which is, you know, what's emerging now is globalization's second draft, a red globalization built not just to generate prosperity, but to aim at towards the people in places left behind in the first time. You know, it's difficult to see exactly where it ends up.
Given US China and this fight that keeps on escalating every day, including today, it's difficult to know how ends up because of AI that will break a lot of things. When does it settle well.
I think we can see certain things emerging. And Larry says nicely, you know, it's in some ways easier to look at the seven years ahead than the seven days ahead, which I thought was a great line. I would say, we know that that issue has to be addressed.
I think that's critical.
It'll take time, and frankly, the best way to address it is through growth policies.
You know what we have not seen it.
If you think about the sequencing of the new administration in the United States, much of what has come initially has been contractionary, has raised uncertainty, has in some ways led to more volatility in the marketplace. The next leg of it, hopefully at some point, will be the question of what can you do to promote a pro growth policy.
If you recall.
Early on during the campaign, there was much talk about simplification, deregulation, easing a bureaucracy, things like that that can help growth. So there's no question that sustained higher growth would be the best way to deal with the debt and deficit problems in combination with reasonable budgetary policy.
And so I think that really is the key.
To make sure that we can maintain stability around debt, because with all the other uncertaints that we have, the last thing you want is questions around again the sanctity of the SOLVEMN signature. The other thing that you can see emerging and Larry has been very consistent on this is the.
Power of capital markets.
It is clear that when you have debt levels the way we have them across the world, governments will be constrained in what they can do with public finances. And this is the moment in a sense where private capital has the step been.
We talked about the large cash balances.
This is needed for governments, it's needed for future prosperity.
It's a great opportunity.
Do you think, I mean, does capital get deployed differently in you know, globalization two point zero and is it being redrafted because of allies? Is it geopolitics or is it about the economics?
Well, I think it's a bit of both.
Again, you know, we have this fragmentation of geopolitics. The new system will be different than the eighty years that we've known since World War Two. There may be more of a home bias in how capital is deployed. I firmly believe the globalization is not over, but it will be reconfigured in a different way, and a stronger home bias may well be part of the way you deal with these fragmented geopolitical conditions.
So take Europe as an example.
Europe has extraordinary ten to eleven trillion euros are sitting on bank deposits in Europe. That money sits on bank deposits. It's not entirely idle. Of course, bank balance sheets are being used to support the economy, but it's sitting there in a way that doesn't really generate much of a return. If part of that money can be deployed and mobilized into the capital markets, and that is of course one of the key objectives I think for Europe, this capital
markets union or savings and investment union. If that can happen, you can see enormous growth potential, innovation potential that comes out of that.
When you look at Europe, how confident are you that this is not going to be a wasted opportunity that Europe sticks together, comes together with more capital solutions and growth. But is there a danger that I guess these you know, even if trade goes back to normal, that there are deeper issues that stay because of what we lived over lost.
Six There is always this danger frenzy, and Europe is a very complicated construct that moves in complicated ways.
Whatever I explained Europe.
To my American colleagues, it's a difficult task. However, I would say this, this is Europe is now under maximum pressure.
This is Europe's moment.
This pressure has always generated responses in Europe.
If you look at the last.
Time we've seen anything like this was in eighty nine when the Soviet Union collapsed and lod behold what happened. Within four years we had the Masters Treaty, which set the foundation for the euro So I very much see this as a similar moment where there is the New
World is exerting maximum pressure on Europe. And I think we talked about the capital markets, completing the single market, in telecom and energy and finance, there are huge opportunities that Europe can rise to and really change the growth outlook. And frankly, also in global investors outlook, they will reallocate to Europe, at least at the margin, if they can see Europe taking these actions that are necessary.
I want to put you on the spot.
If I give you five million today, where do you I mean, given all the uncertainties you know, maybe let's say it's a seven year horizon, where do you put that five million.
I think infrastructure is a in all its kind of dimensions, is a clear need that the world has.
It's a place where you have stable returns.
It's a place where governments can poort the mobilization of private capital with the right policies. And I think Europe, if again, if this pressure moment that Europe is under can generate the actions that are required, particularly around the capital markets Union, I think Europe is a great opportunity. The world is very long dollars. The dollar will remain the reserve currency. That's not going to change anytime soon.
But at the.
Margin, the world has gone very long the US dollar, and at the margin, I think some reallocation to Europe is very likely to occur, particularly if Europe can rise to this unique challenge frankly, but also unique opportunity that it has given the new geopolitical and financial order.
So thank you so much. I could speak to you for anotherose three hours, so you'll have to come back really soon. Philip Hildebrand, a vice chair at black Rock